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M&A REPORT -- New Era of Consolidation

June 2002
BY ERIK CAGLE


Who can forget 1998 and 1999? Those were easily the salad days of merger and acquisition in the commercial printing industry.

The dotcom craze was sweeping across all U.S. industries, with venture capitalists seeking new avenues into the printing segment. Wall Street coveted this largely fragmented industry, and a wave of new kids on the block, consolidators, embarked on the IPO-and-roll-up philosophy. Roughly a half-dozen of these consolidators vied for the growing number of printing companies looking to become cogs in much larger machines, seeking either payola or the benefits from the economies of scale. The national economy was a well-oiled machine, and everyone wanted a slice of the fiscal pie.

When Quebecor merged with World Color, eyes bulged as if witnessing the finale of a fireworks display. An omen, perhaps...

A large sigh of relief was let loose when January 1, 2000, passed without computer chips causing worldwide havoc. But the economy's circuitry began to smoke and fizzle in the fall of that year. The industry followed suit as 2001 turned ledger books red. Dotcoms disappeared, leaving behind only customer lists to be scavenged. A national recession keyed massive layoffs and plant closings. A number of consolidator models crumbled into bankruptcy, while others readjusted their focus.

M&A was DOA. But a new dawn is breaking.

Economic indicators are pointing toward tangible national recovery by year's end, with prosperity for the printing industry ticketed for the first half of 2003. Already there are signs that some of the biggest players in consolidation—those who remain, that is, the venerable names in printing—are mobilizing in their war rooms. Thus far, some of 2002's biggest deals include:

* Consolidated Graphics, Houston, buoyed by the return of negotiating master Chris Colville, has annexed American Lithographers of Sacramento, CA; Carqueville Graphics of Streamwood, IL, a deal that originated last September; and Regent Printing & Imaging of Tulsa, OK, which was merged with Tulsa Litho to create Consolidated Printing Solutions.

* Moore Corp., Toronto, made a large splash when it acquired The Neilsen Co., a $90 million Cincinnati printer. This move came on the heels of a $100 million cost-savings initiative by CEO Robert Burton in 2001, in a campaign that has helped the company's stock rise from the $4 range to $13+.

The vast majority of deals, however, have involved smaller, competing firms that joined forces to enhance product and service capabilities. While these will certainly continue, there are indications that a number of much bigger deals are also on the horizon.
 

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